Principles of Employment Contracts

1. Summary

▪ Employment is generally a consensual contract which means it can be created by mere consent.

▪ Principle of autonomy applies to employment contracts.

▪ Regular employment is the default status of an employee.

▪ Burden of proof is on the employer to prove that an employee is a non-regular.

▪ The law determines the nature of employment, and not the parties.

2. Concept

An employment contract is an agreement whereby an employee would render services in exchange for compensation to be paid by the employer.

a. Consensual contract

GENERAL RULE: Employment is generally a consensual contract (as opposed to a formal or written contract). Meaning, mere consent by the employer and the employee will create an employment relationship. The law does not require a form or a written employment contract to prove an employer-employee relationship.

EXCEPTION: By way of exception, DOLE Department Order No. 174, series of 2017, requires that contractors and subcontractors provide for a written employment contract to their deployed personnel.

b. Presumption favors regular employment

Notwithstanding the fact that an employment contract is consensual, it is strongly recommended to have a written employment contract. The reason being is that an employment is presumed to be regular employment unless proven otherwise via a written employment contract. Meaning, an employee is presumed to be a regular employee unless there is a written employment contract showing that he is a non-regular employee, such a probationary, casual, project, seasonal, or fixed-term. Without proof via a written employment contract that an employee is a non-regular, he/she shall be presumed as a regular employee.

In addition, the written employment contract will be a reference to the stipulations that the employer and the employee agreed on during the job offer, such as compensation, benefits, bonuses, incentives, commissions, and similar thereto.

# Case Law: Vinoya v. NLRC, Regent Food Corporation, G.R. No. 126586, 02 February 2000

It should be pointed out that no particular form of proof is required to prove the existence of an employer-employee relationship. Any competent and relevant evidence may show the relationship. If only documentary evidence would be required to demonstrate that relationship, no scheming employer would ever be brought before bar of justice. In the case at bar, [the Complainant] presented the identification card issue[d] to him on 26 May 1990 by [the Company] as proof that it was the latter who engaged his services. To our mind, the ID card is enough proof that [the Complainant] was previously hired by [the Company] prior to his transfer as agency worker to [the Contractor]. It must be noted that the Employment Contract between [the Complainant] and [the Contractor] was dated 1 July 1991. On the other hand, the ID card issued by [the Company] to [the Complainant] was dated 26 May 1990, or more than one year before the Employment Contract was signed by [the Complainant] in favor of [the Contractor]. It makes one wonder why, if [the Complainant] was indeed recruited by [the Contractor] as its own employee on 1 July 1991, how come he had already been issued an ID card by [the Company] a year earlier? While the Employment Contract indicates the word “renewal,” presumably an attempt to show that [the Complainant] had previously signed a similar contract with [the Contractor], no evidence of a prior contract entered into [the Complainant] and [the Contractor] was ever presented by [the Company]. In fact, despite the demand made by the counsel of [the Complainant] for production of the contract which purportedly shows that prior to 1 July 1991 [the Complainant] was already connected with [the Contractor], [the Company] never made a move to furnish the counsel of [the Complainant] a copy of the alleged original Employment Contract. The only logical conclusion which may be derived from such inaction is that there was no such contract end that the only Employment Contract entered into between [the Contractor] and [the Complainant] was the 1 July 1991 contract and no other. Since, as shown by the ID card, [the Complainant] was already with [the Company] on 26 May 1990, prior to the time any Employment Contract was agreed upon between [the Contractor] and [the Complainant], it follows that it was [the Company] who actually hired and engaged [the Complainant] to be its employee. #

3. Principle of autonomy

The principle of autonomy in contracts state that parties may free stipulate on whatever term and conditions they would agree on provided they are contrary to laws, morals, good customs, or public policy. This principle is applicable in employment contracts as well.

Accordingly, the employer and the employee may free stipulate on the terms of employment provided they do are not contrary to laws, morals, good customs, or public policy. For instance, the employer and the employee cannot stipulate that there shall be no overtime pay or holiday pay when these are required by the Labor Code.

a. Imbued with public interest

The supremacy of the law over the nomenclature of the contract and its pacts and conditions is to bring life to the policy enshrined in the Constitution to afford full protection to labor. Thus, labor contracts are placed on a higher plane than ordinary contracts since these are imbued with public interest and, therefore, subject to the police power of the State. (Innodata Knowledge Services, Inc. v. Inting, G.R. No. 211892, 06 December 2017)

b. Default status of employment is regular

Regular employment is the default employment status unless proven otherwise by the employer. Otherwise stated, it is the employer who has the burden of proof that the employee is not a regular employee. This is done through showing of documentation, such as the employment contract.

c. Law determines nature of employment, not the parties

Under the Labor Code, it is the law that determines the nature of the employment, regardless of any agreement expressing otherwise. Thus, even if the parties stipulate to a casual employment contract to hide the fact that the employee is doing work of a regular employee, the law will consider such arrangement as a regular employment contract from the beginning.

The employment status of a person is defined and prescribed by law and not by what the parties say it should be. Equally important to consider is that a contract of employment is impressed with public interest such that labor contracts must yield to the common good. Thus, provisions of applicable statutes are deemed written into the contract, and the parties are never at liberty to insulate themselves and their relationships from the impact of labor laws and regulations by simply entering into contracts with each other. (Innodata Knowledge Services, Inc. v. Inting, supra.)

Clearly, therefore, the nature of the employment does not depend solely on the will or word of the employer or on the procedure for hiring and the manner of designating the employee. Rather, the nature of the employment depends on the nature of the activities to be performed by the employee, considering the nature of the employer’s business, the duration and scope to be done, and, in some cases, even the length of time of the performance and its continued existence. (Universal Robina Sugar Milling Corporation v. Acibo, G.R. No. 186439, 15 January 2019)

At the outset, we should note that the nature of the employment is determined by law, regardless of any contract expressing otherwise. The supremacy of the law over the nomenclature of the contract and the stipulations contained therein is to bring to life the policy enshrined in the Constitution to afford full protection to labor. Labor contracts, being imbued with public interest, are placed on a higher plane than ordinary contracts and are subject to the police power of the State. (GMA Network, Inc. v. Pabriga, G.R. No. 176419, 27 November 2013)

Similarly, in case of independent contractors or talents who are provided with independent contractor contracts or consultancy agreement, it is possible that they may be classified as a regular employee by the law depending on the circumstances.

Related:

⦁ Independent Contractors – Individuals

d. Circumvention of labor law

“Any obvious circumvention of the law cannot be countenanced. The fact that respondent workers have agreed to be employed on such basis and to forego the protection given to them on their security of tenure, demonstrate nothing more than the serious problem of impoverishment of so many of our people and the resulting unevenness between labor and capital. A contract of employment is impressed with public interest. The provisions of applicable statutes are deemed written into the contract, and ‘the parties are not at liberty to insulate themselves and their relationships from the impact of labor laws and regulations by simply contracting with each other.’” (Basan v. Coca-Cola Bottlers Philippines, G.R. No. 174365-66, 04 February 2015)

“… if it is apparent from the circumstances of the case ‘that periods have been imposed to preclude acquisition of tenurial security by the employee,’ such project or fixed term contracts are disregarded for being contrary to public policy, as in this case.” (University of Santo Tomas v. Samahan ng Manggagawa ng UST, G.R. No. 184262, 24 April 2017)

4. No involuntary servitude

Related:

⦁ Employment Bond

⦁ Post-Employment Restrictions

5. When in doubt, interpreted in favor of the employee

A similarly-worded provision is also found in the Labor Code, which recognizes these employment contract arrangements: regular, probationary, casual, project, and seasonal, to wit:

While fixed-term employment contract arrangements are recognized via jurisprudence, the above rules on interpreting any ambiguity in favor of the workers/employees likewise apply to fixed-term employees.

References

⦁ Book VI, Presidential Decree No. 442, a.k.a. Labor Code of the Philippines

⦁ Book VI, Omnibus Rules Implementing the Labor Code